Understanding Personal Loans: How Do They Work

If you are in need of urgent cash or money, then personal loans serve as the best option for you. Personal loans are the financial tool that would help you achieve various goals. Whether you are looking forward to consolidating debt, buying a car, taking care of medical bills, or covering any other unexpected expenses, these loans help you steer your boat in tough times. Usually, personal loans are unsecured loans, which means you don’t need collateral to qualify for them.

In this article, we would delve deeper into personal loans and understand what is a personal loan, the types of personal loans, how do personal loans work, and more.

What is a Personal Loan?

A personal loan is a lump sum of money that you borrow from a bank or online lender for your personal use. As mentioned earlier, a personal loan is often unsecured and this means it is not backed by any collateral. Upon approval of your loan, you receive the loan amount upfront and repay it over time with interest, usually in fixed monthly instalments.

Types of Personal Loans

The major types of personal loans include:

Components of a Personal Loan

The major components of a personal loan include:

  • Principal: This is the amount of money you borrow. In other words, it is the sum you receive from the lender in your bank account.
  • Interest Rate: The interest rate is the cost of borrowing money. It is often determined by factors such as your credit score, income, loan amount, and repayment term.
  • Repayment Term: This is the period over which you need to repay the loan. It could be months or years.
  • Other charges and fees: There could be processing fees, late payment fees, or prepayment penalties. These fees can affect the overall cost of the loan.

How Do Personal Loans Work?

To get a personal loan, you need to first apply for it. You can apply for an instant personal loan either by visiting the bank branch or signing up with an online lender. However, you would need to provide personal and financial information to the lender. This may include your income, employment history, credit score, and outstanding debts.

Once you have submitted the documents, the lender evaluates your application and creditworthiness to determine if you qualify for the loan. They would also decide the loan amount, interest rate, and repayment terms based on the assessment.

If approved, the loan amount will be disbursed to your bank account. You can then use the funds for whatever purpose you need.

The last step is repayment! You repay the loan in fixed monthly instalments over the agreed-upon term.

Recommended: How Personal Loans Can Help You Save Tax

Benefits of Personal Loans

Benefits of Personal Loan


Personal loans can be used for a variety of purposes from consolidating debt to covering unexpected expenses.

No Collateral

Unlike secured loans, personal loans don’t require collateral, and hence, you do not have to risk losing assets.

Fixed Payments

With fixed interest rates and monthly payments, personal loans make it easier for you to budget and plan for repayment.

Lower Interest Rates Than Credit Cards

Depending on your creditworthiness, you may get lower personal loan interest rates in India compared to credit cards.

Also Read: 6 Dos and Don’ts While Applying for an Instant Loan

How CASHe Personal Loans Can Help You?

CASHe offers quick personal loans to meet your financial needs. Apply for an instant personal loan today and enjoy the convenience of the easy online application process. With CASHe, you can get approved for a loan within minutes and receive the funds directly into your bank account. Whether you need to cover medical expenses, plan a vacation, or manage unexpected bills, CASHe App provides an instant personal loan of up to ₹4 Lakh with a competitive interest rate. So, if instant loan approval is what you are looking for, then download the CASHe app right away and avail the best personal loan in India.